A new medium-range missile is fired from a naval ship during Velayat-90 war game on Sea of Oman near the Strait of Hormuz in southern Iran January 1, 2012

By Andrew Quinn

WASHINGTON | Mon Jan 2, 2012 6:01pm EST

(Reuters) – The United States has armed itself with some of the toughest sanctions yet targeting Iran but must carefully assess how to avoid catching energy-importing allies such as Japan, South Korea and India in the crossfire.

President Barack Obama signed the law on Saturday imposing sanctions on financial institutions that deal with Iran’s central bank, the main clearinghouse through which OPEC’s No. 2 oil exporter deals with clients around the world.

The new U.S. sanctions were pushed through Congress despite misgivings among administration officials, who now must consider how to implement the law without roiling global energy markets or upsetting friendly governments that depend in part on Iranian crude oil imports.

Political analysts said Washington hopes the new sanctions will spur foreign banks to change their behavior before the United States is required to begin freezing them out of U.S. financial markets.

“The sanctions will force a choice between buying Iranian oil or engaging in the U.S. financial system, the largest in the world. That is going to change the risk calculus for a lot of folks,” said Brian Katulis, a security expert at the Center for American Progress.

“They are going to wait to see how this signal is received before they take any further steps.”

MORE SCALPEL THAN AXE

The new U.S. measures target both private and government-controlled banks, including central banks, and would take hold after a two- to six-month warning period depending on the transactions.

U.S. officials acknowledge that allies such as Japan have concerns, and have built in several provisions designed to make the new law more of a scalpel than an axe.

The law allows Obama to exempt institutions in a country that has significantly reduced its dealings with Iran. He may also grant waivers deemed to be in the U.S. national security interest or otherwise necessary for energy market stability.

Obama would need to notify Congress and waivers would be temporary but they could be extended.

White House officials declined to say which countries have sought waivers or how they expect the sanctions to impact U.S. relations with Iran’s oil customers.

China, the No. 1 customer for Iran’s oil, and Russia have both resisted additional sanctions on Tehran and are unlikely to be swayed by the new U.S. law, analysts said.

But for countries such as Turkey, which gets about 30 percent of its oil from Iran, or India, which gets 11 percent, the prospect of a U.S. waiver could reduce anxieties over the sanctions and consolidate support for Washington’s aggressive stance on Iran’s nuclear ambitions.

“There is increased frustration from many of these nations when they see that previous rounds of sanctions haven’t done what they were intended to do,” said Trita Parsi, an Iran expert and head of the National Iranian American Council.

“Part of the administration argument going into an election against a Republican candidate is that Obama has been able to create a much stronger international coalition against Iran. You can’t make that argument if you end up in a conflict with some of those allies.”

Waivers also could be selectively granted for humanitarian reasons or for institutions that have forward contracts with Iranian companies – blunting the immediate impact of the new law, while retaining the threat of full implementation.

TENSIONS AND TALKS

The new U.S. sanctions came at a moment of increasing tension with Tehran, which in recent days Iran has tested long-range missiles and staged 10 days of naval exercises in the Gulf. Iran also warned it could shut the Strait of Hormuz, through which 40 percent of world oil is shipped, if sanctions were imposed on its crude exports.

Oil markets have been closely watching the standoff between Tehran and the West, with oil prices finding some support from Iranian threats to cut off the Strait of Hormuz last week.

Top global exporter Saudi Arabia has sought to assure markets, pledging to make up for any shortfalls in Iranian crude supplies to Europe.

Tehran already is subject to four rounds of U.N. sanctions because of its refusal to halt sensitive nuclear activities and faces more pain if the European Union follows the United States and bans imports of Iranian crude oil.

Tehran signaled during the weekend that it was ready to resume talks on its nuclear program with the United States, Russia, China, Britain, France and Germany that stalled in January.

Western officials have said repeatedly they still want to talk to Tehran but only if it is ready to discuss the core concerns about its nuclear program. Tehran says the nuclear program is purely for peaceful purposes but the United States and others fear it is aimed at producing atomic weapons.

George Lopez, a sanctions expert at the University of Notre Dame, said the new U.S. sanctions could strengthen Washington’s hand going into any new talks with Iran after a year of steadily increasing economic pressure.

“This is the book-end to a series of measures that began late last spring in coordination with the EU,” Lopez said.

“It sends a strong message to (Iranian President Mahmoud) Ahmadinejad and also to domestic constituents that we’re not backing off. But it is also a strong message that they should come back to the table.”

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